Enterprise Sri Lanka: empowering the merchants and nurturing the bankers

By Mass Movement for Social Justice

In the lead up to the Budget Speech for 2019 by Finance Minister Mangala Samaraweera, critics of this Government’s economic policy had anticipated either a populist ‘election Budget’ or an austerity-loaded ‘IMF Budget’. What we got instead was a curious mixture of both.

The Budget’s heavy emphasis on extending cheap loans via ‘Enterprise Sri Lanka’ will likely increase domestic consumption in the short-term, which in turn will register as growth in the economy – all in time for upcoming elections. However, the Budget’s focus on deepening market liberalisation and encouraging private sector intervention in essential services like housing, transport, and education, is indicative of the ideological influence of international lending agencies like the IMF.

Private sector subsidies

Enterprise Sri Lanka, the flagship economic program of the current Government, attempts to leverage cheap loans in the pursuit of two somewhat contradictory goals: 1. to fulfil the aspirations of the middle class by subsidising consumption and 2. To jump-start private sector growth in Small and Medium Enterprises (SMEs). 

Newly proposed concessionary loan schemes like ‘Home Sweet Home’ (Rs. 10 million for first-time home owners to build their own house, or purchase a premade apartment or house), and ‘Sihina Maliga’ (Rs. 10 million for migrant workers to build a house), are blatant subsidies for the construction industry and will serve to expand speculation in real estate. There is no reason such funds cannot be redirected into building and maintaining affordable public housing projects.

In the sphere of transport, the concessionary loan schemes under ‘Riya Shakthi’ (Rs. 4 million for private school van owners), and ‘City Ride’ (Rs. 10 million for private bus fleet owners), can also be seen as subsidies for private transport operators. Funds which could be used for expanding and maintaining the state’s fleet of public buses, or to initiate safe transport for public school children, are instead funnelled into the private sector – whose monopolies and poor safety record in transport are well known.

The ‘Rekawarana’ loan scheme is expected to lure the private sector into delivering sensitive and essential services, such as the establishment and operation of child-care and elderly-care facilities. These are services that Sri Lanka desperately needs, and should fall under the broader purview of public health. But without clear guidelines and allocations for monitoring mechanisms, it is unclear just how safe and accessible these private services will be for the most socioeconomically vulnerable groups.

In education, the Budget encourages privatisation at the lowest and highest levels. The ‘Singithi Pasala’ scheme provides loans for private entities to repair and establish pre-schools, while the ‘My future’ loan scheme allocates Rs. 200 million for students to pursue higher education in private universities. Even more farcical is the proposal of a whopping Rs. 500 million to send a mere 14 students to prestigious foreign universities. These proposals should be seen as a blatant subsidy for mushrooming private universities, as well as a wellspring for university student debt, which will have crippling effects on youth in the future. As with many of the loan proposals, it is unclear why the Government cannot simply allocate these funds to upgrade and expand existing public education services.

The few Budget proposals for direct state investment in services and infrastructure are also gifts to the private sector. For example, Rs. 400 million has been allocated for the establishment of climate-controlled warehousing facilities for agricultural produce, though this will be handed over to the private sector for profit-making. Essentially, the state takes all the risk, and forfeits the ability to collect a return on its investment.

No SMEs without R&D

There is no real guarantee that cheap loans will go towards investment in the productive capital that Sri Lanka desperately needs if it is to move towards industrialisation. A glance at the newly-proposed loan schemes under Enterprise Sri Lanka indicate that any new ‘entrepreneurs’ would simply be rentiers in essential services like housing, transport, and education. Rather than generating sustainable growth and employment, these proposals would leave vulnerable groups at the mercy of the market.

In his Budget speech, Samaraweera places blind faith in the mythical notion of a “genuine entrepreneur who uses his ingenuity to compete in a fair market” and “the small and mid-size businesses that embody the spirit of Sri Lankan trade and commerce”. But free market utopias aside, the Budget’s proposals fail to address any of the structural issues that inhibit the development of SMEs. 

Local SMEs operate in a context of low state investment in research and development (R&D), leaving them with little access to data and industrial knowhow. This in turn makes them disadvantaged when having to compete with highly specialised imported commodities - a factor that will increase in prominence as the Government continues phasing out para-tariffs. One of the few proposals that deals with R&D is ‘Science at Work’, which allocates a meagre Rs. 50 million for research in areas broadly linked to agriculture and housing. The allocation is earmarked for the ‘scientific community’ with no mention of specific organisations or institutions that might carry out such research for the public good.

Consuming without producing

In his Budget speech, Samaraweera noted that many banks were hesitant to give out loans to people without collateral. The Budget’s solution for this is to allocate Rs. 500  million under a Central Bank fund to act as collateral for loans given out under Enterprise Sri Lanka. Therefore, if and when inflation eats into borrowers’ ability to pay back their interest, it is taxpayer money that will serve as collateral. 

Loans to subsidise consumption, no matter how cheap, are destined to backfire, given their long-term inflationary effects. As commodity prices rise against stagnant wages, those who borrow for consumption will find themselves financially squeezed to pay back the interest. Meanwhile, those who borrow for productive enterprises are unlikely to succeed in competition with highly specialised imported commodities, which will flood the market as para-tariffs are phased out. The end result would be the extraction of wealth from the semi-urban and rural middle class towards urban financial centres. This will heighten inequality and, given Sri Lanka’s history, likely manifest in social and communal unrest.

The Government would have us believe that Enterprise Sri Lanka is “empowering the people and nurturing the poor”. But by prying the domestic market open for foreign imports, and mobilising cheap loans as the only solution to a host of macroeconomic problems, the truth is that this Budget will only empower and nurture a small coterie of merchants and bankers.